The chancellor, Philip Hammond, says that National Insurance for self-employed people will no longer rise. But other Budget changes still stand. What else did he announce?
Budget 2017 tax changes
- Personal allowance: the personal tax allowance will rise to £11,500 from £11,000 on April 6th. This means you’ll be able to earn or get £11,500 in income before you pay tax. The 40% tax threshold will rise to £45,000. This is not a new announcement, but the Budget confirmed previous rises announced by George Osborne.
- Self employed National Insurance: People who are self employed currently pay two classes of National Insurance. You pay it at a flat rate of £2.80 a week if you have more than £5,965 a year in profit – called Class 2. You also pay class 4 contributions at 9% on any profits between £8,060 and £43,000 and 2% on profits above £43,000.
From April 2018, Class 2 NI will be abolished (this was announced in the Budget in 2016). Today (March 15th), the chancellor announced that the main rate for Class 4 NI will not rise from 9% to 10% from April 2018 and to 11% in 2019, as he had announced in the Budget. Abolishing Class 2 NI will save £145.60 a year.
- Reduction in tax free dividend allowance. The dividend allowance of £5,000 was introduced in April 2016. It means that if you’re a company director, you can pay yourself up to £5,000 a year in dividends and you won’t have to pay tax. You can also receive up to £5,000 tax free by way of dividend income from investments. From April 2018, that will fall to £2,000. You can read more about how dividends are taxed from April 2016 in my article.
SAVVY TIP: The government says that 80% of investors won’t pay any dividend tax.
- Rent-a-room scheme: The government will consult on redesigning the rent-a-room scheme to make sure it works better for long term lettings rather than, presumably, Airbnb type lettings.
- Tax credit debt: the DWP will recover tax credit overpayments by using measures including taking the debt from earnings.
- A new NS&I bond will go on sale in April 2017. You’ll be able to save up to £3,000 in it and the interest rate will be 2.2% fixed for three years. This will pay up to £198 in interest over three years. The bonds will be available for 12 months and will be open to anyone aged 16 or over who has at least £100 to save. These details were announced in the Autumn Statement, but the chancellor said then that the interest rate would be confirmed today.
- ISA limits increase to £20,000 from April 6th. This was announced last year and confirmed today. You’ll also be able to save up to £4,128 in Junior ISAs from April.
- Household savings rates: I don’t normally include economic figures, but this one leapt out at me. The Budget documents said that the percentage that households saved in Q3 of 2016 fell to just 5.6% of disposable income. However, disposable income rose in 2016. Elsewhere in the Budget document it says that 53% of all households have less than £3,000 in savings. These are government figures.
Pensions & retirement
- State pension age rising: the government is currently considering the evidence and will publish its review into future rises in the state pension age on May 7th.
- State pension spending will rise from 5% of GDP (gross domestic product) in 2021- 22 to 7.1% by 2066 – 67.
- Money purchase annual allowance: The government will go ahead with a planned reduction in the money purchase annual allowance (MPAA). This is currently set at £10,000 and it’s the amount you can pay into your pension every year while getting tax relief, once you’ve started taking money from your pension using pension freedoms. The limit will fall to £4,000 from April 6th 2017. This has already been proposed, and today the chancellor confirmed the government would go ahead.
- Master trust regulation: these are workplace pensions that are run by pension companies and which a number of employers sign up to. The chancellor announced that the government would improve consumer protection by amending the registration process.
- QROPS transfer charge: QROPS stands for qualifying recognised overseas pension schemes and the chancellor announced that a 25% transfer charge would be introduced. The idea is to reduce the tax incentive for transferring your pension to a QROP (because people have been putting their pension into QROPS because they can take out more tax free). But there will be exceptions, such as when people are in genuine need to transfer their pension including when the person and their pension are located in the EEA (European Economic Area).
- Money taken out of pensions using pension freedoms: This is not a policy announcement, but an update of the cost of a policy. When pension ‘freedoms’ were announced in 2014, the government thought this would raise an extra £0.3 billion in tax in 2015 – 16. This would be from money that people took out of their pensions and paid tax on. Yesterday’s Budget revealed that £1.5 billion has been raised – five that amount, and the Office for Budget Responsibility (OBR) estimates that a further £1.1 billion will be raised in 2016 – 17. You can read my article called How to reduce your tax bill when you take money out of your pension.
- Social care: An extra £2 billion for social care – including £1 billion in 2017 – 18.
Social security benefit fraud
- Benefit fraud and error: The DWP will work with an external data company to ‘better identify fraud and error caused by undeclared partners’. As most benefits are assessed and paid on the basis of what the household earns, rather than individuals, it means households where a couple are living together but haven’t told the DWP. This was announced on 9th February this year.
- Consumer rights green paper: This will examine markets that aren’t working fairly or efficiently. I’m hoping they mean they energy market and banks, but we’ll have to wait and see. The government will also change the law so that the CMA (the competition watchdog) can fine companies breaking the law. The government will introduce specific measures to protect people from ‘subscription traps’ when a free trial ends or when a subscription is renewed. It will also look to make terms and conditions simpler and shorter.
Small business & companies
- Business rates revaluation. The chancellor announced some transition measures to help the smallest businesses and pubs with a rateable value of up to £100,000.
- VAT thresholds: from April 1st 2017, the threshold at which you have to register for VAT will rise from £83,000 to £85,000. The level at which you can deregister will fall from £83,000 to £81,000.
- Making tax digital: the government’s plans to make people file tax information four times a year and to be fully online is being delayed until April 2019 for small businesses and landlords with a turnover below the VAT threshold.
- £2,000 National Insurance Employment Allowance: This was introduced by George Osborne, but the chancellor announced that it would consider taking action as there are reports that this NI allowance is being abused.
- Self employment: Alongside the National Insurance changes (which I’ve covered in the tax section at the start of the document), the government will consult in the summer so that self employed people don’t get different parental benefits to employed people. There will also be a report by an independent expert into some factors driving the rise in self employment.
Students and lifelong learning
- Further education maintenance loans: From 2019-20, maintenance loans will be available to students doing technical courses (levels 4 to 6).
- Lifelong learning pilots: The government will test different approaches to help people retrain or build on their skills throughout their working lives.
- Part-time maintenance loans: These were announced in the Budget of 2015, but today’s Budget confirms that these loans will be available for degree level study from 2018-19 and for distance learning and other non-degree qualifications from 2019-20.
- Car tax: there are big changes to car tax in April for new cars, but cars registered before April 2017 will see their car tax rise by inflation (the RPI – retail price index).
- Diesel tax: The Budget said it will ‘explore the appropriate tax treatment for diesel cars’ and is likely to announce changes in the Autumn Budget.
- Air passenger duty: this is a tax you pay when you fly. Under 16s don’t pay it but everyone else pays either £13 for short haul flights (£26 for anything other than economy) and £71 for long haul flights (£142 for anything other than economy). This change was introduced in May 2015. Today’s Budget announced that the rates for 2018-19 would increase by RPI inflation.
- School transport: Children who get free meals or whose parents get the maximum working tax credit will be able to get free transport to the nearest selective school.
The chancellor referred to the fact the Budget was held on International Women’s Day, but the tax-free childcare he referred to was announced two years ago (and has been re-announced at every Budget and Autumn Statement since!). The start date for tax relief on childcare costs to be phased in is April this year (it was due to be last year, then early this year and it’s been put back again). You can read more about the plans for tax relief on childcare costs in my article.
- Returnees: The government is making £5 million available to increase the number of people who can return to work in the private and public sector after a career break.
- Centenary fund: The government will set aside £5 million for projects to celebrate the 100th anniversary of women being given the vote. In fact, only women over 30 were given the vote in 1918. Women were only given the right to vote on the same basis as men (if aged 21 or over) ten years later in 1928. If you want to read a little more about what’s changed for women’s finances since the 1920s, you can read more in my article.
- Tackling domestic violence: An extra £20 million to tackle domestic violence. The government will also bring forward a Domestic Violence and Abuse Act. However, women’s refuges have seen their funding cut dramatically in recent years. Figures from Women’s Aid show that 17% of women’s refuges in England and Wales have closed since 2010. Many rely on funding from local authorities but their funding isn’t ring fenced. As local authorities have had huge cuts to their own funding, money for domestic violence services has been cut.
Tampon tax fund: In the Autumn Statement in 2015 George Osborne announced that money raised through VAT on tampons and other sanitary products would go to women’s charities. Around £15 million is raised every year and in its first year, £15 million was given to women’s charities. In his Budget, Philip Hammond announced that £12 million would be given to women’s charities (the charities that get this money will be announced at the end of March).
Alcohol and tobacco
- Wine, spirit and beer tax will rise from next Monday (13th March) by RPI inflation. The government will also consult on a new duty band for still cider and still wine. A pint of beer will be 2p more, a bottle of still wine will be 8p more, a bottle of sparkling wine 10p more and a bottle of spirits will be 40p more.
- Tobacco duty increase will be 2% above RPI from 6pm on Budget Day. This was announced in the Budget in 2014. A packet of 20 cigarettes will rise by 35p and from 20th May there will be a ‘floor’ below which the price of 20 cigarettes won’t be able to be sold. How come? Well, tobacco manufacturers will have to pay a minimum level of duty of £5.37, which will mean cigarettes can’t be sold at less than £8.83 for 20. Currently a pack of 20 ‘premium’ cigarettes costs £9.91. This will rise to £10.26.
- Inflation (as measured by CPI) is forecast to be 2.4% in 2017.
- Household debt will rise to 153% of household income by 2021. This is higher than was forecast in the Autumn Statement.
- Lloyds Bank will be fully returned to the private sector by 2017 – 18. The government is on track to recover the entire £20.3 billion bailout to the bank.
- RBS will have to resolve legacy issues before the government’s share can be sold.
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